by Calculated Risk on 8/23/2006 10:42:00 AM

The AP reports:

"Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam."

The National Association of Realtors (NAR) reports: Existing-Home Sales Down With Softening Prices

Click on graph for larger image.

Existing-home sales were down in July, while home prices in many areas are slightly below year-ago levels, according to the National Association of Realtors®.

Total existing home sales – including single-family, townhomes, condominiums and co-ops – dropped 4.1 percent to a seasonally adjusted annual rate1 of 6.33 million units in July from a downwardly revised pace of 6.60 million June, and were 11.2 percent below the 7.13 million-unit level in July 2005.

David Lereah, NAR’s chief economist, said higher interest rates dampened sales but that price softening is good news for the housing market because it is drawing buyers. “Many potential home buyers have been on the sidelines, some ‘kicking the tires,’ but mostly waiting for sellers to compromise on prices and terms,” he said. “Now sellers in many areas of the country are pricing to reflect current market realities. As a result, there could be some lift to home sales, but it’ll likely take some months for price appreciation to rise.”

The national median existing-home price for all housing types was $230,000 in July, up 0.9 percent from July 2005 when the median was $228,000. The median is a typical market price where half of the homes sold for more and half sold for less.

Total housing inventory levels rose 3.2 percent at the end of July to 3.86 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace.

Existing Home Sales are a trailing indicator. The sales are reported at close of escrow, so July sales reflects agreements reached in May and June.

As I've noted before, usually 6 to 8 months of inventory starts causing pricing problem - and over 8 months a significant problem. With current inventory levels at 7.3 months of supply, inventories are now in the danger zone and prices are falling in many areas.